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January 24, 2018

The road to revival


January 24, 2018

The list of emerging economies issued by the World Economic Forum has ranked Pakistan’s economy far above India’s, with the former occupying the 47th position as against the 62nd spot earned by the latter.

In its World Economic Outlook Update, issued on the eve of the WEF’s meeting in Davos, the IMF acknowledged that Pakistan attained a growth rate of 5.3 percent during 2016-17 and predicted that the upward trend is likely to continue during 2018-2019. This economic revival has repeatedly been endorsed by the international lending and rating agencies and is an outcome of the government’s prudent economic management during the last four-and-a-half years.

However, there is no dearth of people around us who are bent upon criticising the economic performance of the country, set in motion by the PML-N government, for reasons that are invariably divorced from contextual relevance and rationales. As per the view that is being propagated, excessive borrowing by the government, the foreign trade deficit, the rising fiscal deficit and debts are going to send the economy into a nosedive. They are relentlessly trying to promote the idea that the country is on the brink of an economic disaster. Some Western media reports have also created hype about Pakistan’s inability to service the accumulating debt.

While the proponents of the doomsday scenario have recognised the existence of these problems, they have failed to elicit the reasons that have led to these challenges – which they believe could scuttle whatever progress has been made so far. They have also hesitated to acknowledge the likely off-setting and the multiplier effect of the projects on the basis of which this borrowed money has been invested on the future health and strength of the economy.

The reality is that the government has embarked on a massive programme of infrastructure development in the country that is considered to be a major driving force for economic growth – especially under CPEC.

The National Highway Authority reportedly initiated projects worth Rs1,400 billion during the last four years, including some under CPEC and others to build a network of roads throughout the country. Some of these projects were initiated on a BOT basis while other were started through private-public cooperation, CPEC loans from the Chinese banks on the lowest possible interest rate of 1.6 percent – which, compared with the interest rates charged by other international lending agencies, is favourable.

Despite its financial constraints, Pakistan also had to divert a large amount of funds to the war on terror. The economy reportedly also suffered losses worth Rs120 billion due its involvement in the fight against terrorism. The narrow base of tax revenues is one of the major factors that necessitated borrowing for development needs. In fact, Pakistan is one of the countries with the lowest rates of tax collection in the world. It has long been troubled by the tax problem, which is one of the main reasons for its fiscal deficit.

Notwithstanding the foregoing constraints and debilitating factors as well as the volatile political situation in the country, there is no denying the fact that the PML-N government has been able to pull the economy out of the quagmire that it was stuck in when th party seized the reins in 2013.

It is a recorded fact that the country was facing the prospect of defaulting on IMF loans and had to seek another loan from the body to rectify the situation. It is an irrefutable fact that among other success stories regarding the inherited challenge, the revival of the economy through prudent economic management has been the most appreciated and endorsed achievements of the government. The country has seen the GDP growth rate rise to 5.3 percent (the highest in the last 10 years) in 2017 from a dismally low rate of three percent in 2013. The budgetary deficit, which stood at 8.8 percent in 2013, was brought down to 4.4 percent – though it has gone slightly beyond 5 percent recently.

There are countless difficulties in managing the economy owing to the factors pointed out by various critics. However, there are many remedies at hand to fix them and keep the economy on track. These problems can be addressed gradually through development to ensure financial sustainability. This is, however, a temporary phenomenon. Everything will fall into place when all the infrastructural development projects, including motorways, road networks and the CPEC projects as a whole become operational. These endeavours are likely to generate economic activity of colossal proportions that, fuelled by its multiplier effect, would result in an era of unimaginable economic prosperity.

Economists believe that the prospects for progress and prosperity are much brighter in the future and the implementation of CPEC would add another two to three percent to the GDP growth rate. The resources generated by this mega-economic initiative will not only be sufficient to address the confronting challenges but will also address the future development needs of the country, which eventually lead to the end of the country’s dependence on foreign loans for its development projects and fiscal woes. CPEC has also led to an increase in the foreign direct investment (FDI) in the country. According to the State Bank of Pakistan, FDI has increased by 56 percent year-on-year in the July-September period. The major chunk of 65 percent has come from China.

Another factor that is going to play a pivotal role in uplifting Pakistan’s economy is the availability of energy for the industrial development of the country, which has been severely hampered owing to the energy crisis that the government inherited. These energy shortages had resulted in losses worth Rs14 billion to Pakistan’s economy in 2015, which is equivalent to seven per cent of the GDP. However, it is encouraging to note that the production of electricity in the country is 16,477MW as against the current demand of 14,017MW. This enabled the government to announce the end of loadshedding.

Under CPEC, power-producing projects, with an accumulated power-generation capacity of 10,640MW, were initiated. All these projects will become operational in 2017-18. Another 6,645MW of the early harvest projects in the energy sector are also on the actively-promoted list. This will provide an impetus for industrial development, improve the employment situation and expand the tax base.

The country’s economic situation is not as dismal as the detractors of the government and those with other vested interests would have us believe. There is a strong likelihood that we will attain a higher economic ranking in the future as our current problems are on their way to becoming extinct.

The writer is a freelancecontributor.

Email: [email protected]

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